Can’t Pay the IRS? Repaying IRS Tax Debt on Your Terms
You’re caught, you received notice via certified mail from the IRS.
You know you owe and you do want to pay.
But when you count sky-high penalties and interest youjust don’t have it...
You might have tried to tell this to the IRS, but if it’s anything like I remember it, they don’t care. They just want to know how you’re going to repay your back taxes in full.
Your assigned IRS Agent might be holding out on you. They may not be telling you have the option to take care of your debt with monthly payments. There are options for you, even if you can’t repay the IRS in full.
Payments and the IRS: They Make the Rules
You can lock yourself into an agreement known as an “Installment Agreement” to repay the IRS monthly. Unfortunately, there are a few catches. The IRS set the payment rules, not you.
You Don’t Set the Payment Amount with the IRS
When you owe a credit card debt, you can pay a minimum amount every month. The IRS play that game. The IRS determines how much you’ll pay, and you’re not going to like what they ask for. You’ll be required to provide a Full Financial Disclosure, letting the tax man know how you spend every cent you earn.
From here, the IRS will determine your “allowable” expenses (in a way, telling you how to spend your money) and set the amount you will pay them from there.
IRS Interest Continues to Accrue
Interest will continue to accrue on your debt as you repay the IRS with an Installment Agreement, to the tune of 25% in a given year. Depending on the debt owed, and the amount of your payments, it might feel like your debt’s not going down.
The IRS Will Ask for More
If your pay increases, the IRS will increase your installment payment amounts when they find out. Sorry, but your hard-earned raise might go right into the governments hands before you even get to see it.
But You Want to Spend Your Money Your Way…
You and the IRS are bound to disagree on which of your expenses are “allowable”. According to the IRS, expenses like other creditors and private school tuition don’t count. When it’s time to set up a payment arrangement with the IRS, be prepared to roll up your sleeves and fight to get the arrangement you want.
The Smoking Gun: It’s harder to change your payment amount when you’ve already negotiated with the IRS. I highly recommend working with a professional before you call the IRS and give them the full disclosure on your financial situation.
A professional can determine if you qualify for a program that keeps the IRS from knowing all of your personal expenditures, allowing you to negotiate from a better position.